If you're like most people, you probably assumed that age, driving record, and experience behind the wheel were the main factors in determining your insurance premiums.
Turns out that your spendthrift ways may have an impact on what you pay to insure your car and home, even if you're a long-standing customer and generally an upstanding citizen.
Telling signs in your credit report
More and more home and auto insurers rely on credit data as a predictor of future loss, using it to decide whether they will accept, cancel, or renew home and auto policies, and exactly what they'll charge you for them.
What's the connection between credit and auto claims? Industry studies show that certain financial strikes -- such as payment delinquencies, outstanding credit card balances, collections, foreclosures, and bankruptcies -- are linked to the likelihood of a person filing a claim.
But even pristine customers are being hit with higher rates. Those who have "no hits" on their credit record -- because they use cash, not plastic, for purchases -- get squeezed because, in the eyes of the industry, they have no credit history.
The majority of insurance companies use an insurance-specific risk scoring system to determine whether to do business with you and at what rate. Many use that data in tandem with credit report information to set rates. However, some states do not allow insurers to use credit to make business decisions at all. (To find out if your credit is used to calculate your rates, call your insurance company and directly ask.)
Are you ready to let your credit speak for your driving acumen? Now you have another reason to clean up your credit. Pull your credit reports from the three major credit reporting agencies at annualcreditreport.com and review them closely for accuracy.
Make any needed repairs so there are no surprises come home or auto insurance policy renewal time.
More Motley Fool tips on cleaning up your credit: